- The UK stock market has reacted negatively to the British Prime Minister Boris Johnson’s announcement of the imposition of fresh measures to curb the spread of the deadly pandemic
- After a destructive year, the share price of Rolls-Royce has doubled in just one week
- The management of Rolls-Royce has unveiled a £5 billion rescue plan, securing the future of aircraft engineering group with a new £3 billion debt package and £2billion rights issue
The outbreak of the Covid-19 and the international measures adopted to contain the virus has had a major impact on economic activity in the UK. The pandemic has triggered the labour markets, global supply chains, consumption behaviours, market expectations etc. affecting the global economy. The stock market is one of the most important components among these. The slow pace of economic growth and lack of capital inflows have led to relatively limited resources for stock markets to cope up with the impacts of the pandemic. Hence, they are suffering the most.
The Decline in FTSE 100
On 12 October 2020, when the British Prime Minister Boris Johnson announced the imposition of fresh measures to curb the spread of the deadly pandemic, there had been a negative impact on the UK stock market, and they recorded a decline from the previous close.
The sudden spike in the number of coronavirus cases had traumatized the Britons who feared a second wave of the virus. Hence, another lockdown has been announced by the British Prime Minister.
21 September 2020 was the worst day in the last three months of the stock market as over £51 billion was wiped off from FTSE 100 in a single day of trade. With the hospitality sector in danger due to the anticipated lockdown restrictions, pub chain Mitchells & Butler (LON: MAB) had lost 15 per cent, people working from home would see fewer commuters leading to a fall in the share price of transport firm Firstgroup (LON: FGP) by almost 12 per cent. Travel stocks were the top fallers, with British Airways parent company IAG closing 12 per cent lower. Rolls-Royce, Jet-engine maker also tumbled 10 per cent, recording its lowest level since 2004.
Experts are of the belief that another lockdown would prove to be disastrous for the economy and undermine the economic recovery that has taken place n the last few months. It would lead to a significant increase in both the unemployment rate and bankruptcy rates, especially for small businesses.
Movement of FTSE 100
The London stock market has been trading mostly in the red as since June 2020. FTSE 100, one of the major indices of the London Stock Exchange closed at GBX 5,832.52 on 15 October 2020, remaining below the 6,000 mark. On Friday, 16 September 2020, the index has been showing some recovery in the first half of the trade, hovering at 5,889.10, up by 0.97% (11:21 AM GMT+1) from its previous closing.
Among the top gainers of the day (at the time of reporting) on the FTSE 100 index was Rolls-Royce Holdings Plc (LON: RR.) at GBX 210.30, up by 7.79%, Burberry Group Plc (LON: BRBY) at GBX 1,539.00, up by 3.46%, JD Sports Fashion Plc (LON: JD.) at GBX 805.00, up by 3.55%, Just Eat Takeaway.Com N.V.(LON: JET) at GBX 9,908.00, up by 3.23%.
To Know More, Do Read: FTSE 100 Market Movers: 10 Top Trades of The Day
An Insight on Rolls Royce Share Price
Manufacturing aircraft engines is the major source of revenue for The FTSE 100 group Rolls-Royce Holdings (LON: RR.). The global travel restrictions had led to a plunge in the sales as carriers grounded their fleets.
After a destructive year, the share price of Rolls-Royce doubled in just over a week, jumping by 96 per cent. One of the reasons why investors have been piling in is that the management has unveiled a £5 billion rescue plan, securing the future of aircraft engineering group with a new £3 billion debt package and £2 billion rights issue. On 12 October 2020, when the markets slumped, even then the share price rose another 3 per cent with the company moving towards reinforcing its balance sheet.
Also, Prime Minister Boris Johnson’s move to push the nuclear button has acted as a catalyst in lifting the prospects of Rolls-Royce. The Group is heading a nine-member consortium which is planning to build a string of Small Modular Reactor (SMR) power stations around the UK. Westminster might be ready to invest up to £2 billion to take ownership in the project. The decision is pending and is expected to come as early in October.
Rolls Royce shares have surged more than fifty per cent in the past week but are still trading below the pre-Covid levels. However, the share price looks very dicey with the onset of the second wave of coronavirus and fresh travel restrictions being introduced.
The government had announced a raft of measures aimed at protecting workers and businesses affected by lockdown restrictions in the month of March 2020, including a 12-month business rates holiday for firms in the retail, leisure and hospitality industries and a Coronavirus Job Retention Scheme (CJRS) for furloughed workers. But as social distancing measures continue, the firms that are not able to reduce their costs substantially may have to struggle, pressurizing the government for further support. Rolls Royce shares have been showing smart recovery after posting a dismal number in the half-year results, with Covid-19 impacting its core businesses. However, the timely and prudent approach of the management has helped it gaining ground; it also needs to be noted that the defence business of the company remained resilient and is likely to propel growth in future as well.